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Is Intel 'dumping' graphics chips?

June 12, 1998
Web posted at: 4:20 PM EDT

by Rob Guth and Terho Uimonen

TOKYO (IDG) -- The newly appointed CEO of Intel, in an interview Wednesday night, shot down recent reports that his company is selling its graphics chips at deep discounts in order to gain market share and reduce inventories of its first-generation graphics accelerator chip.

"Bull----," Intel president and CEO Craig Barrett said when asked about charges that his company is selling the i740 chip below cost.

"You would hope the press would pick out better sources than our competitors to describe our actions. It's kind of like going to McNealy and asking him about Gates," he said, referring to two of the best-known archenemies in the computer industry.

Barrett's comments follow reports this week that Intel is bundling the i740 chip with Pentium II processors at prices that would put the actual cost of the i740 between $7 and $18. At those levels, the chip's cost would be far below its $28 list price, prompting several industry sources to claim that Intel is "dumping" the chip, or selling it below fair market value.

The reports originated from last week's Computex trade show in Taiwan--where around 30 Taiwanese manufacturers displayed graphics add-in cards based on the i740--but quickly spread under the heat of an antitrust suit the U.S. Federal Trade Commission filed against Intel on Monday.

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The FTC complaint argued that Intel is withholding intellectual property from customers and is using its market monopoly power to "cement its dominance over the microprocessor market."

At the interview in Tokyo Wednesday night, Intel spokesman Howard High said the company investigated the i740 dumping rumors and found no evidence that the chips were selling at a discount. Instead, according to Intel partners in Taiwan, the i740 sticker is about $24, "and they said they'll go to $22 in another quarter or so," High said.

Industry sources in Taiwan, however, put the i740's current price at around $20.

Though Intel will likely shrug off this week's controversy, the chip giant probably has not heard the last from the graphics chip community, which faces a threat as Intel expands onto its turf, analysts said.

First introduced in February this year, the i740 marked Intel's long-expected entry into the graphics chip arena. To speed up the chip's development, Intel used 3-D technology from Real 3D, which it has a stake in, as well as 2-D capabilities from Chips & Technologies, which it acquired earlier this year.

To date, most graphics chips in desktop PCs have ridden on add-in graphics cards. In higher-end systems, the superior performance of dedicated graphics add-in cards is still expected to remain a major market for chip and board vendors alike, and market analysts generally predict a bright future for the graphics chip industry.

In a recent report, for example, market researcher In-Stat forecast average annual graphics chip sales growth of 20 percent from 1997 to 2002, with desktop graphics revenues growing at 15 percent and notebook graphics sales expected to grow even faster at 31 percent annually.

In the cutthroat low-end PC business, however, many vendors are looking to cut costs by adding the graphics directly onto the motherboard.

At Computex in Taiwan last week, several major motherboard makers, including Asustek Computer and First International Computer, showcased the new so-called all-in-one motherboards featuring on-board graphics chips. Designed to run Intel's low-end Celeron processors, the boards target the piping-hot market for sub-$1000 PCs, officials said.

The next step is integration of graphics capabilities straight onto the processor, a strategy that Cyrix Corporation's MediaGX line of processors pioneered, while Intel's main move in that direction to date has been the graphics-enhancing features in its MMX instruction set.

"Innovate, integrate, innovate, integrate, that's the way the industry works," Intel's Barrett said. "Graphics was a stand-alone graphics card; then it's going to be a stand-alone graphics chip; and then part of that's going to get integrated into the main CPU."

Barrett yesterday shrugged off MediaGX's graphics capabilities as "crummy," but did not give details as to when Intel will fold more graphics capabilities into its own CPUs. He predicted, however, that the general industry trend means "you will see some reasonable graphics capabilities integrated into processors in the next couple of years."

Meanwhile, Intel is also working on a follow-up to the 440EX chip set, targeted at the low-end Celeron processor. Code-named Whitney, the chip set is scheduled for release in the first half of next year and is expected to feature an integrated version of the i740, a move sure to cause further consternation in the graphics industry, observers said.